Verdict: Street breached his fiduciary duty

March 5, 2010

Updated Aug. 21, 2013 1:17 p.m.

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Orange County Treasurer-Tax Collector Chriss Street, center, holding boards, crosses Temple Street with members of his legal team and family, during his fraud trial in U.S. Bankruptcy Court last month. ARMANDO BROWN, FOR THE ORANGE COUNTY REGISTER

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Chriss Street, treasurer of Orange County, California, speaks during an editorial board meeting in New York, U.S., on Friday, June 12, 2009. Andrew Harrer/Bloomberg News

Orange County Treasurer-Tax Collector Chriss Street, center, holding boards, crosses Temple Street with members of his legal team and family, during his fraud trial in U.S. Bankruptcy Court last month. ARMANDO BROWN, FOR THE ORANGE COUNTY REGISTER

A federal bankruptcy judge has found that Orange County Treasurer-Tax Collector Chriss Street breached his fiduciary duty five years ago when he attempted to build an empire instead of protecting the assets of a trust he was hired to liquidate.

U.S. Bankruptcy Judge Richard M. Neiter on Friday ordered Street to pay more than $7 million in damages to the End of the Road Trust. Orange County Supervisor John Moorlach called for Street's resignation.

"He's got to go," said Moorlach, who was Street's predecessor for Orange County treasurer and endorsed him in 2006. "The taxpayers don't deserve this nonsense."

Street was the court-appointed trustee for the remains of the bankrupt Fruehauf Trailer Corp. on from 1998 until creditors forced him out in July 2005. Moorlach hired him as the county's assistant treasurer in 2006. The judge's decision comes a week before a filing deadline for candidates to challenge Street's reelection bid in the June election.

During a two-day trial, attorneys for the trust accused Street of wasting money on failed business ventures, delaying payments to creditors, and otherwise breaching his duty "in an effort to serve his own selfish ends."

Neiter agreed in a 29-page ruling in which he questioned Street's credibility and used words like "absurd" and "inconceivable" to describe Street's actions and explanations.

"The overwhelming evidence at trial showed that the Defendant willfully engaged in self-dealing to advance his personal interest ahead of that of the Trust's beneficiaries," Neiter wrote.

Through his attorney, Phillip B. Greer, Street declined to comment. Greer also said he won't comment on the case, or on Moorlach's call for Street's resignation, until he has a chance to further review the ruling.

"And I would hope that everyone else could do the same thing," Greer said. "I think that you have to look at what Mr. Street has done as treasurer ... He has provided calm, conservative and competent stewardship of the county's money and resources."

Street's successor as trustee at Fruehauf, Los Angeles money manager Dan Harrow, sued him for fraud and breach of fiduciary duty in February 2007.

The case hinged on Street's decision as trustee to buy two failing truck-trailer manufacturers. He bought the companies, American Trailer Inc. and Dorsey Trailers, in an attempt to build up the trust's one profitable operation, Mexican manufacturer Fruehauf de Mexico. Both companies ultimately collapsed after the trust poured millions of dollars into them.

Neiter rejected Street's argument that he should not be held liable for the decision because independent oversight groups – not him – approved the transactions.

The only plausible explanation for the purchases, Neiter wrote, is that Street "was attempting to create an operating company that would do business in the United States and Mexico that would go public and enable Street to earn substantial sums as its CEO and as a major shareholder. It was not to preserve Trust assets while pursuing their liquidation."

The $7,068,765 judgment includes more than $3.3 million for violations of the trust agreement related to his dealings with Dorsey and nearly $3.2 million for the purchase of American Trailer. In addition, it calls for Street to repay $242,544 in excess salary compensation and $203,754 for personal expenses that he charged to the trust.

Court records showed that Street used the trust as his personal piggy bank, charging stays at resort hotels, a $750 dinner at Spago, Botox treatments and a traffic citation for his Ferrari.

The judge rejected a demand by the trustee that Street repay his entire salary.

"We've carried this case for a long time, and we endured a difficult trial, and we're very pleased that justice prevailed in the end," Fruehauf attorney Robert Kugler said.

Street can't evade paying damages by filing for bankruptcy, Kugler said, because a section in the bankruptcy code prohibits the discharge of debts for fraud, reckless conduct or breach of fiduciary duty.

In addition to being a victory for the trust, Kugler said, it's of "significant concern" to Orange County voters, he said.

"I think that you've got an elected official out there who has been found to have intentionally breached duties of trust – the very same types of duties that he has as the treasurer of Orange County. And that ought to be of significant concern to any voter of Orange County," Kugler said.

So far, two candidates are challenging Street for the county treasurer's post: Huntington Beach's elected treasurer, Shari Freidenrich and Pat Desmond, a long-time employee of the county assessor.

"It's just a sad day in Orange County," Freidenrich said. "Taxpayers and our elected leaders need a treasurer who has an unblemished record of protecting public funds and meeting the position's fiduciary duty."

Even if Street is reelected in June, Moorlach said he'd ask his fellow supervisors to consider stripping Street of his investment authority. No other county supervisor returned calls for comment.

Street was one of Moorlach's advisors when he first questioned former Treasurer Robert Citron's heavily leveraged investment strategy in 1994. Moorlach lost that race but was appointed treasurer after Citron's bets collapsed and the county fled into bankruptcy court. Moorlach later hired Street as his assistant.

But Moorlach's endorsement of Street is long gone.

Moorlach said he's supporting Freidenrich in June's election and urged voters to do the same: "I don't think he's got the right to still be in an elected position."

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